Accumulate Colgate Palmolive; target of Rs 1852: Prabhudas Lilladher

Prabhudas Lilladher's research report on Colgate Palmolive

We are cutting EPS estimates by 6.4%/3.1%/3.5% for FY22/FY23/FY24 on the back of 1) Increased Input cost inflation and 2) Low volume growth expected in 2H22 given large base in 4Q21 and 3) Flattish EBIDTA margins over FY21-24 post sharp 460bps gains in FY21. Increased promotions during the Quarter resulted in ~4.2% volume growth but with pressure on realisations. CLGT is cautiously optimistic given no pressure on rural demand and benefits of its promotions, innovations and GTM initiatives. CLGT is focusing on accelerating growth led by 1) Ramping up innovations (launched Colgate Visible White Instant and Colgate Vedshakti Mouth spray & Oil pulling, Toothpaste for Diabetics) 2) Increasing promotion intensity to drive volumes 3) Normalizing Ad spends to improve brand recall and 5) Increasing focus on Ecom and MT helping improve product mix. We estimate 8.3% Sales CAGR and 8.4% PAT CAGR over FY22-24.

Outlook

We value CLGT at 40x Sep23EPS and assign a Target of Rs 1852 (Rs 1846 earlier). Although growth is unexciting, cheaper valuations of 34.9x/31.1x FY23/FY24EPS vs peers, Dividend yield of 2.3% in FY22 given 92.2% payout and ROE and ROCE of 87.9% and 116.6% limit any downside. Retain Accumulate.

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